Commercial Real Estate Rapid data center expansion could strain city budgets, create credit risk

Article originally posted on Phoenix Business Journal on April 1, 2026

The explosion in demand for data center capacity and rapid planning to get projects off the ground could pose a risk to local governments’ creditworthiness.

As developers and investors tout tax revenues for communities, the facilities could also drive economic concentration and volatility while potentially straining local resources, according to a new report from S&P Global.

“In some ways this looks a lot like economic and taxpayer concentration in any economic development scenario in any city,” said Sarah Sullivant, managing director at S&P.

“The AI and data centers sector is riskier precisely because there’s so much uncertainty on how that sector is going to evolve,” Sullivant added.

The findings highlight a need for adequate long-term planning from municipalities, especially with Arizona serving as a data center hot spot. Vacancy rates are now at 1% and the data center market is set to double in size here over the next two years, according to a recent report from JLL.

Some cities including Mesa and Phoenix — along with Maricopa County — have recently updated their zoning rules to cover data centers. Goodyear is also now working to regulate the facilities.

According to the S&P report, building out data centers does drive short-term economic benefits to communities through new construction jobs, permitting-related costs and local sales taxes. They can also drive long-term property tax revenue.

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